In an earlier post, I had touched on the Court of Appeal decision which decided on the mandatory obligation to advertise the presentation of a winding up petition. This therefore precluded any injunction to restrain such advertisement.The Federal Court in Savant-Asia Sdn Bhd v Sunway PMI-Pile Construction Sdn Bhd has confirmed the mandatory nature of the advertisement of the winding up petition. This is notwithstanding the fact that post-presentation of the petition, the debt under the petition had already been paid by the respondent company to the petitioner and that the petition was going to be withdrawn.

The single issue to be determined by the Federal Court was whether a petitioner in a winding-up petition may be excused from advertising the fact of the petition after the debt had been fully paid by the respondent.

In the judgment of Arifin Zakaria FCJ (as he then was), held that winding-up proceedings were essentially a class action. It seeks to provide protection to unsecured creditors upon the date of the presentation of the petition. Since it is a class action, there is a need for it to be advertised to give notice to all creditors, and this is a mandatory obligation provided under the Winding-Up Rules.

The Federal Court quoted with approval the finding by Abdul Aziz JCA when the case was before the Court of Appeal, that “to omit to advertise the petition would directly assist the appellants to surreptitiously keep the money exclusively to themselves, in the event that there were other creditors.”

The effect of this judgment is that it not only confirms that it is mandatory to advertise the winding up petition upon presentation, but it now imposes a positive obligation for the petitioner to advertise even after the settling of the debt post-presentation of the petition. I can see the strength of the argument that the statutory scheme for winding up should be to enable the protection of unsecured creditors and to uphold the pari passu principle.

However, the strict application of these principles will potentially lead to disastrous practical effects. It is now imperative for the recipient of a Section 218 Notice to immediately apply for injunctive relief to restrain the presentation of a winding up petition within the 21-day notice period. There cannot be an injunction to restrain the advertisement of the petition, even if the debt is bona fide disputed. Winding up proceedings may be abused to bring undue pressure on a company to pay out on an alleged debt, even if it is disputed, within that 21-day period. For public listed companies in particular, where the advertisement of a winding up petition may lead to irreparable harm to its reputation and even a suspension of its securities on the stock exchange, they may have no choice but to pay out on such debts.